Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
The fact that people are buying this popular plausible explanation without questioning is precisely why I am sticking to my 80% equity allocation and have not sold any of the oil or commodity equities despite the deep drawdown.
Think about it.
The logic is, there is an oversupply of oil, therefore the economy must be slowing down and so we need to get out of the market.
But at the same time, we also see that the production of oil has been expanding with new sources. So couldn't the economies grow and the glut of oil grow at the same time if the production increased faster than a healthy (or at least not sick) economy? The glut of oil would be the equivalent of a QE for the oil consuming industries and countries. What economic principle says the economic output must match the production levels of oil regardless of how much is produced or we are in trouble?
I looked at EIA data to see if there were any signs in reduction of consumption and cannot find any beyond the normal historical variance of +/- 0.5M to 1M barrels a day even with the increased oil production from the US.
Imagine if the corn growers started to produce more and more corn and increased yield with new farming techniques and so they started to pile up a glut of unused corn because of it. The financial experts then proclaimed that since corn and corn-based products are so widely used people must be buying/eating less and so we are in danger of a recession!
Would you buy that logic?
How exactly does this make sense? What am I missing?
Not saying I know that there will not be an economic slowdown in the horizon or there will not be a 2008 like contagion from commodity based trading gone wrong but this popular sentiment/rationale does not pass the smell test for me. It is actually good that the wonder kids of Wall Street have largely gotten out of commodities trading so they don't take down the whole country blowing up that trading.
Markets movers seem to be trying to front-run even the possibility of good or bad news to ridiculous proportions.
If only the "journalists" asked that obvious question and supported it with relevant data before they churned out quota articles.
Here is a thesis that I have been thinking about for the last several months as I reflect on my investments that in fact peaked on the above chart in July-Aug of 2014 with oil at$110.Caught too many falling knives since.
James A. Kostohryz Positions For 2016: An Upside Surprise For The Year? Jan. 15, 2016 6:39 PM ET Seeking Alpha The oil market is being driven by a new paradigm that the world is just barely beginning to understand. Kostohryz shared his thoughts on the direction of the markets with Seeking Alpha Editor Michael Hopkins. Excerpts from oil outlook MH: Oil prices are at the forefront of investors' minds. What is your view of oil prices and stocks in the oil sector?
JAK: If I could leave readers with only one thought regarding oil, it is that the crude oil market and the entire oil industry is at the leading edge of a long-term paradigm shift. We are moving from a world that until recently was preoccupied with so-called "Peak Oil" toward a world that is discovering a new reality: Much of the world's oil supply is going to become a "stranded asset" within the next 30-50 years. Everything that is happening in the oil market at the present time - from the over-supply caused by US shale fracking - to the new Saudi policy vis a vis OPEC, and even the possible partial privatization of Saudi ARAMCO - is ultimately being driven by this new paradigm that the world is just barely beginning to understand. The reality is that due to new technologies that have vastly increased recoverable reserves of oil and gas plus the development of alternative energy sources that will inevitably replace the role of crude oil and natural gas, there is far more crude oil and natural gas in the world than humanity will ever need. This is inexorably producing a race to the bottom in terms of long-term oil pricing as large reserve holders have a pressing economic interest in monetizing their reserves before they become stranded. Now, even in this context, oil will remain a volatile cyclical commodity and it will have many cyclical bull runs in the future. But the long-term secular trajectory for the purchasing power value of oil, and the profitability and economic value of the oil industry more generally, is one of terminal decline. So, the fact is that future spikes are inevitable - as they always have been. And under current technical conditions, the spikes can be violent. Traders can take advantage of these situations. The question is what long-term investors should do. It is my view that during the next spike in oil prices, long-term investors need to seriously consider jettisoning virtually all oil and gas investments. This includes integrated oil companies, producers, refiners, mid-stream pipeline companies, etc. The fact is that oil and gas is an industry that is in terminal decline, just like the coal industry that is dying in an agonizing fashion before our very eyes. Given the new realities, oil and gas stocks are suitable for speculative traders only. http://seekingalpha.com/article/3813976-james-a-kostohryz-positions-for-2016-an-upside-surprise-for-the-year
I think this chart seems to capture James A. Kostohryz sentiments shared by @TSP_Transfer.
Interesting article by the author of the chart at David Stockman's Contra Corner site:
"We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur." 2016-outlook-oil-limits-and-the-end-of-the-debt-supercycle/
Also, US in Oct 2015 decided to start selling its strategic oil supply...interesting?
Unfortunately, drawing a pretty chart of what happens when the world ends does not explain why the world ends or make any such claims credible.
Seems like we have replaced one group of doomsday people who have been crying oil is going to run out with disastrous consequences when the prices and demand were going up with another group of doomsday people that think oil is going to zero and/or no one will be able to afford anything produced (because?) with disastrous consequences when the prices start to go down.
Makes for nice Mad Max movie plots but people take these seriously?
Amazing demonstration of investor sentiment when we start to buy such claims without any critical examination.
The original article did note that China and India were on their way to building even larger oil reserves at cheap oil prices. They are oil consuming nations. US is in a better position now as a significant producer by treating the undrilled shale oil as part of its reserves that can always be drilled in dire situations even if the fracking industry goes under now with a glut of oil, the reason for keeping the oil reserves in the first place. Saudis don't build up strategic reserves for a good reason.
So looking at the chart that Bee's uploaded, I'm thinking that it is not very realistic. Think about it. Are 9 billion people going back to the caves?
After rereading the article written by the author of the chart I uploaded my take is that as a result of cheap money (mostly debt) & (new efficient technologies) we have over produced fuels (like oil, NG and others). This over production has to be used or stored. Demand is down and as we run out of storage capacity for the over production the price of the fuel drops. Debt get difficult to service at $30, $20, $10/ barrel and defaults ensue (by companies and or countries).
Interesting times as Iran comes off sanctions.
Chinese are purchasing auto as a rate 12X what they were 12 years ago, but will that slow? Is China the bull or the bear in the China shop?
Also, remember when you would get prizes from your gas station when you filled up with say, "Good Gulf"?
I wish my printer ink followed the same economies of scale as the oil industry. I am amazed at how a new printer (with ink) can sell for roughly the cost of the replacement ink. I believe drug dealer use the same business model.
Bee, If you look carefully, you will discover that the new printer which comes with ink is a scam. The amount of ink in new printers will barely last a week or two based on your usage; then you will have to buy refills (which I suggest you buy on eBay or some other site.) The normal retail for my printer refill was $30. On ebay I bought 2 packages for $13 delivered and they are as good as factory refills.
Sorry @bee wrong premise it would appear. The only oil producers that have gone into debt producing oil is the fracking industry in the US. Why would their failure increase systemic risk of countries failing based on debt? In the worst case some regional banks in the Southern states holding these junk bonds would fail, just like they failed when mortgages went bad (unrelated to the securitization failures in Wall Street).
Besides, wouldn't their failure restore the imbalance in supply/demand. 8/9 Million barrels a day going off market would not only remove the current glut of about a million barrels a day but put an upward pressure on the prices. Isn't that how free markets work with supply and demand?
I fail to see the line of thought to that extreme interpolation. Apologies.
'Bull or bear in the China shop' Gotta love it. Anywho, guy in PA near us bought up unused railroad trackage and turned it into a parking lot. $3 dollars a day per car. We estimate he can accomodate nearly 1000. I drive by this stuff frequently...oil cars exclusively. The economy may be sagging. Evidently entrepreneurship is not. FWIW. best, hawk
Dancing a different kind of Contango: “Shipowners are the ones who gain here,” Erik Nikolai Stavseth, a shipping analyst for Arctic Securities ASA in Oslo, said by phone. “Whether tankers are storing out of necessity or because traders can turn a profit, the bottom line is that it means these vessels aren’t competing for cargoes. And that means diminished fleet supply and better rates.”
The old single-hulled tankers that are not allowed in too many ports anymore may be sitting out there storing the stuff. I guess shipowners just hit oil...
The old single-hulled tankers that are not allowed in too many ports anymore may be sitting out there storing the stuff. I guess shipowners just hit oil...
Quick search: One Article on this boom for shippers: "The very thing which has been negative for oil markets has been positive for tanker markets," said George Los, a New York- based analyst for Charles R. Weber Co. "We have seen a supply driven boost to the tanker market which has come at the cost of the oil market." nola.com/business/index.ssf/2016/01/destructive_oil_crash_giving_s.html
It seems simplistic, but it really is an issue of over-supply. Demand is NOT down. The demand continues to grow, not by as much as when China was growing 9-10% annually. But the demand IS growing. Many rigs in the U.S., especially in the shale fields, have already shut down, and more will close operations in the coming months. Do not be surprised to see OPEC reduce output in the next few months, especially with oil from Iran waiting to be added to the glut. Like almost all market-driven issues, this will solve itself. Production at some point will reach a sort of equilibrium with demand. As that happens, prices will rise. At some point, demand could exceed supply, and then we will see prices rise significantly. Funny how this works. It happens with virtually all commodities at some point, when supply exceeds demand. Some cycles take longer than others to play out.
At some point, demand could exceed supply, and then we will see prices rise significantly. Funny how this works. It happens with virtually all commodities at some point, when supply exceeds demand. Some cycles take longer than others to play out.
I've stopped taking Metal to the town dump since it's considered a chargeable item, which is a topic in itself, but to BobC's point; don't expect to get a whole lot for that old metal filing cabinet these days.
I brought a thousand pounds of miscellaneous iron to our local metal recycler and drove away with $16 in my pocket for the 1,000 pounds of iron in my trailer. Better than having to pay my town dump which would have charged me (60 cent / 10 pounds after the first 100 lbs which is "free"). Using my town dump and their "Municipality Math" to unload the metal would have cost me $54. Crazy world we live in.
By the way, a town dump truck full of metal was just ahead of me as a waited to weigh in at the metal recycler. I guess the sheeple continue to see the world through wool covered glasses.
There is a small graphic illustrating currency valuation changes last year. If these were to swing in other directions this year, how much would it affect/scramble the oil flow graphic (or would it)?
Looked at historical prices today in an effort to understand. When I was a kid (50s & 60s) oil was priced around $1-$2. (Of course these are nominal not inflation adjusted numbers.)
In the early 70s it was still very low, $1-$3. But around '73 -'74 it suddenly quadrupled from around $3 to $12. Never really looked back, although I think it dipped below $30 in the late 90s. Essentially it continued rising, with occasional sell-offs, until getting up over $100 during the past decade. Linked chart gives nominal price followed by 2013 inflation-adjusted prices. http://chartsbin.com/view/oau
I have no idea what's going on with oil right now. Theories abound. I've seen the many links, news stories and opinions expressed on the MFO board. Commodities are notorously difficult to understand, value, predict. But if the global economy remains anywhere near healthy, I can't see oil staying at/below $28 for very long. Despite the China economic woes, oil consumption actually increased in China last year. I carved-out a small stake in Price's Latin America fund (PRLAX) today. It's a long-term bet that the commodities slide is overdone and these economies will recover in coming years.
*Not an expert - None of this is intended to represent investment advice. ---
Stock market today? Over coffee the DJ futures showed +250. Red now. James Thurber: Don't count your boobies until they're hatched.
@hank, my pet theory which is as good (as bad) as any tin foil hat theory out there is that the price in oil follows the rise and fall of commodities trading and that the increasing securitization of energy created artificial demand.
I am just glad that the attempts to securitize housing as some people wanted before the 2008 burst didn't start.
They would have claimed it is good for price discovery. What would have happened is that the increasing speculation in futures and other paper instruments that represented "housing assets" without actually having to own a house would have bid up the prices based on capital inflows with the expectation that they would be able to sell it at a higher price as long as there was housing demand to justify momentum trading. Actual home prices would have shot up even more with expectations based on this speculative trading (someone must think housing will be worth that much) building an even bigger bubble than what we had. Until the trading went it into a bear market from capital outflows and housing prices would have collapsed even more drastically.
I suspect something similar happened with commodities with the increased scrutiny collapsing that after 2008.
Anyone remember the banks which are laying off their commodities trading staff now were buying barges to store oil at the height of the boom?
"buying barges to store oil at the height of the boom? "
I was more or less thinking of that over the weekend- this is by no means the first time that inactive/obsolescent tankers have been utilized for temporary storage.
@old_joe, I meant to highlight such activity by entities who were neither on the production nor on the consumption side who were doing it to support their commodities trading. If airlines buy excess oil as a hedge and store them in old barges or tankers, fine. If Saudis place some of their glut in old barges, makes sense. Morgan Stanley buying barges to store oil is purely for reasons of commodity trading, nothing to do with actual demand of the commodity by consumers of that commodity. I believe such trading contributed to a bubble pricing in oil by overrepresenting demand and we are just doing a price reset to what the actual physical demand justifies.
There seems to be a lot more built into the pricing of a commodities (oil at the top of that list). More than merely a business model of supply and demand, costs and profits.
Oil trades in dollars so a certain portion of oil's price (in USD) is impacted by the strength of the U.S. dollar. Today, a stronger USD puts downward pressure on a portion of the price of a barrel of oil. When I think of oil's importance to global economies I think of oil more as a currency or debt instrument than merely a commodity for sale.
Sovereign use the revenue from oil supply to help fund entitlements. Hell, even Alaska provides a yearly oil stipend to its state citizens to spend into the economy. Oil is dispersed across the globe in all kinds of products at a disperse cost to the consumer, yet oil has a concentrated benefit to Sovereigns (Russia, Saudi Arabia, Venezuela, etc.) to helps stimulate their economies and balance their budgets and the companies in the oil patch..
It's a little less clear as to the role corporations play as social engineers in this dynamic, but no doubt companies, like the Koch Brothers, have made it their mission to steer (through political donations and TV Ads) the political process and social conscientiousness towards their way of thinking.
All of this doesn't work at $10-$20-$30/ Barrel of oil so enjoy the price at the pump while it lasts.
Remember lot's things, economically speaking, work on the principle of:
"we are just doing a price reset to what the actual physical demand justifies."
@vkt- If that's so (and I'm not contesting the possibility) then Saudi Arabia, Russia, and some other major producers whose national budgets depend on oil at $80+ are in very serious long-term trouble. Iran coming back on line isn't going to help one bit, either.
Considering the instability that a situation like that is liable to introduce, the potential international political and military repercussions are very troublesome.
@old_joe, one could have the same extreme worry about southern states of the US so reliant on oil! Venezuela will be in trouble but the effect may as equally be loss of power of the dictatorial regime there when they can longer bribe people into staying in power. Nigeria could be a problem with stability. Russia and other countries capable of diversifying will have some pain and adopt. Not even as bad as Greece. Saudis will do fine even if it means not building more fancy buildings. They have also been very smart about diversifying their investments - they probably own most of London between the sovereign funds and invidual members of the royal family. They own significant financial interests in the US as well. Their margins are still good at around the $40 that I expect. They will do it wth volume rather than very high margins. But I think the benefits of cheaper oil going forward will lift all boats as a boost to world economy. And the price of oil will continue to creep upwards as economy picks up in the next up cycle. It is a limited non-renewable resource after all.
Comments
Edited to add: It's -10 degrees in the backyard outside the igloo as we speak with a 15mph wind. I might have a use for that over supply.
Think about it.
The logic is, there is an oversupply of oil, therefore the economy must be slowing down and so we need to get out of the market.
But at the same time, we also see that the production of oil has been expanding with new sources. So couldn't the economies grow and the glut of oil grow at the same time if the production increased faster than a healthy (or at least not sick) economy? The glut of oil would be the equivalent of a QE for the oil consuming industries and countries. What economic principle says the economic output must match the production levels of oil regardless of how much is produced or we are in trouble?
I looked at EIA data to see if there were any signs in reduction of consumption and cannot find any beyond the normal historical variance of +/- 0.5M to 1M barrels a day even with the increased oil production from the US.
Imagine if the corn growers started to produce more and more corn and increased yield with new farming techniques and so they started to pile up a glut of unused corn because of it. The financial experts then proclaimed that since corn and corn-based products are so widely used people must be buying/eating less and so we are in danger of a recession!
Would you buy that logic?
How exactly does this make sense? What am I missing?
Not saying I know that there will not be an economic slowdown in the horizon or there will not be a 2008 like contagion from commodity based trading gone wrong but this popular sentiment/rationale does not pass the smell test for me. It is actually good that the wonder kids of Wall Street have largely gotten out of commodities trading so they don't take down the whole country blowing up that trading.
Markets movers seem to be trying to front-run even the possibility of good or bad news to ridiculous proportions.
If only the "journalists" asked that obvious question and supported it with relevant data before they churned out quota articles.
Here is a thesis that I have been thinking about for the last several months as I reflect on my investments that in fact peaked on the above chart in July-Aug of 2014 with oil at$110.Caught too many falling knives since.
James A. Kostohryz Positions For 2016: An Upside Surprise For The Year?
Jan. 15, 2016 6:39 PM ET Seeking Alpha The oil market is being driven by a new paradigm that the world is just barely beginning to understand.
Kostohryz shared his thoughts on the direction of the markets with Seeking Alpha Editor Michael Hopkins.
Excerpts from oil outlook
MH: Oil prices are at the forefront of investors' minds. What is your view of oil prices and stocks in the oil sector?
JAK: If I could leave readers with only one thought regarding oil, it is that the crude oil market and the entire oil industry is at the leading edge of a long-term paradigm shift. We are moving from a world that until recently was preoccupied with so-called "Peak Oil" toward a world that is discovering a new reality: Much of the world's oil supply is going to become a "stranded asset" within the next 30-50 years. Everything that is happening in the oil market at the present time - from the over-supply caused by US shale fracking - to the new Saudi policy vis a vis OPEC, and even the possible partial privatization of Saudi ARAMCO - is ultimately being driven by this new paradigm that the world is just barely beginning to understand. The reality is that due to new technologies that have vastly increased recoverable reserves of oil and gas plus the development of alternative energy sources that will inevitably replace the role of crude oil and natural gas, there is far more crude oil and natural gas in the world than humanity will ever need. This is inexorably producing a race to the bottom in terms of long-term oil pricing as large reserve holders have a pressing economic interest in monetizing their reserves before they become stranded. Now, even in this context, oil will remain a volatile cyclical commodity and it will have many cyclical bull runs in the future. But the long-term secular trajectory for the purchasing power value of oil, and the profitability and economic value of the oil industry more generally, is one of terminal decline.
So, the fact is that future spikes are inevitable - as they always have been. And under current technical conditions, the spikes can be violent. Traders can take advantage of these situations. The question is what long-term investors should do. It is my view that during the next spike in oil prices, long-term investors need to seriously consider jettisoning virtually all oil and gas investments. This includes integrated oil companies, producers, refiners, mid-stream pipeline companies, etc. The fact is that oil and gas is an industry that is in terminal decline, just like the coal industry that is dying in an agonizing fashion before our very eyes. Given the new realities, oil and gas stocks are suitable for speculative traders only.
http://seekingalpha.com/article/3813976-james-a-kostohryz-positions-for-2016-an-upside-surprise-for-the-year
Interesting article by the author of the chart at David Stockman's Contra Corner site:
"We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur."
2016-outlook-oil-limits-and-the-end-of-the-debt-supercycle/
Also, US in Oct 2015 decided to start selling its strategic oil supply...interesting?
u-s-plans-to-sell-down-strategic-oil-reserve-to-raise-cash
Seems like we have replaced one group of doomsday people who have been crying oil is going to run out with disastrous consequences when the prices and demand were going up with another group of doomsday people that think oil is going to zero and/or no one will be able to afford anything produced (because?) with disastrous consequences when the prices start to go down.
Makes for nice Mad Max movie plots but people take these seriously?
Amazing demonstration of investor sentiment when we start to buy such claims without any critical examination.
The original article did note that China and India were on their way to building even larger oil reserves at cheap oil prices. They are oil consuming nations. US is in a better position now as a significant producer by treating the undrilled shale oil as part of its reserves that can always be drilled in dire situations even if the fracking industry goes under now with a glut of oil, the reason for keeping the oil reserves in the first place. Saudis don't build up strategic reserves for a good reason.
Interesting times as Iran comes off sanctions.
Chinese are purchasing auto as a rate 12X what they were 12 years ago, but will that slow?
Is China the bull or the bear in the China shop?
Also, remember when you would get prizes from your gas station when you filled up with say, "Good Gulf"?
I wish my printer ink followed the same economies of scale as the oil industry. I am amazed at how a new printer (with ink) can sell for roughly the cost of the replacement ink. I believe drug dealer use the same business model.
Besides, wouldn't their failure restore the imbalance in supply/demand. 8/9 Million barrels a day going off market would not only remove the current glut of about a million barrels a day but put an upward pressure on the prices. Isn't that how free markets work with supply and demand?
I fail to see the line of thought to that extreme interpolation. Apologies.
Anywho, guy in PA near us bought up unused railroad trackage and turned it into a parking lot. $3 dollars a day per car. We estimate he can accomodate nearly 1000. I drive by this stuff frequently...oil cars exclusively.
The economy may be sagging. Evidently entrepreneurship is not.
FWIW.
best, hawk
“Shipowners are the ones who gain here,” Erik Nikolai Stavseth, a shipping analyst for Arctic Securities ASA in Oslo, said by phone. “Whether tankers are storing out of necessity or because traders can turn a profit, the bottom line is that it means these vessels aren’t competing for cargoes. And that means diminished fleet supply and better rates.”
bloomberg.com/news/articles/2015-12-11/why-oil-traders-aren-t-dancing-the-contango-this-time-around
One Article on this boom for shippers:
"The very thing which has been negative for oil markets has been positive for tanker markets," said George Los, a New York- based analyst for Charles R. Weber Co. "We have seen a supply driven boost to the tanker market which has come at the cost of the oil market."
nola.com/business/index.ssf/2016/01/destructive_oil_crash_giving_s.html
I brought a thousand pounds of miscellaneous iron to our local metal recycler and drove away with $16 in my pocket for the 1,000 pounds of iron in my trailer. Better than having to pay my town dump which would have charged me (60 cent / 10 pounds after the first 100 lbs which is "free"). Using my town dump and their "Municipality Math" to unload the metal would have cost me $54. Crazy world we live in.
By the way, a town dump truck full of metal was just ahead of me as a waited to weigh in at the metal recycler. I guess the sheeple continue to see the world through wool covered glasses.
http://www.visualcapitalist.com/visualizing-the-flow-of-oil-around-the-world/?utm_source=Visual+Capitalist+Infographics+(All)&utm_campaign=42532349e0-Most_Valuable_Cash_Crop&utm_medium=email&utm_term=0_31b4d09e8a-42532349e0-43745525
There is a small graphic illustrating currency valuation changes last year. If these were to swing in other directions this year, how much would it affect/scramble the oil flow graphic (or would it)?
In the early 70s it was still very low, $1-$3. But around '73 -'74 it suddenly quadrupled from around $3 to $12. Never really looked back, although I think it dipped below $30 in the late 90s. Essentially it continued rising, with occasional sell-offs, until getting up over $100 during the past decade. Linked chart gives nominal price followed by 2013 inflation-adjusted prices. http://chartsbin.com/view/oau
I have no idea what's going on with oil right now. Theories abound. I've seen the many links, news stories and opinions expressed on the MFO board. Commodities are notorously difficult to understand, value, predict. But if the global economy remains anywhere near healthy, I can't see oil staying at/below $28 for very long. Despite the China economic woes, oil consumption actually increased in China last year. I carved-out a small stake in Price's Latin America fund (PRLAX) today. It's a long-term bet that the commodities slide is overdone and these economies will recover in coming years.
*Not an expert - None of this is intended to represent investment advice.
---
Stock market today? Over coffee the DJ futures showed +250. Red now.
James Thurber: Don't count your boobies until they're hatched.
I am just glad that the attempts to securitize housing as some people wanted before the 2008 burst didn't start.
They would have claimed it is good for price discovery. What would have happened is that the increasing speculation in futures and other paper instruments that represented "housing assets" without actually having to own a house would have bid up the prices based on capital inflows with the expectation that they would be able to sell it at a higher price as long as there was housing demand to justify momentum trading. Actual home prices would have shot up even more with expectations based on this speculative trading (someone must think housing will be worth that much) building an even bigger bubble than what we had. Until the trading went it into a bear market from capital outflows and housing prices would have collapsed even more drastically.
I suspect something similar happened with commodities with the increased scrutiny collapsing that after 2008.
Anyone remember the banks which are laying off their commodities trading staff now were buying barges to store oil at the height of the boom?
I was more or less thinking of that over the weekend- this is by no means the first time that inactive/obsolescent tankers have been utilized for temporary storage.
Oil trades in dollars so a certain portion of oil's price (in USD) is impacted by the strength of the U.S. dollar. Today, a stronger USD puts downward pressure on a portion of the price of a barrel of oil. When I think of oil's importance to global economies I think of oil more as a currency or debt instrument than merely a commodity for sale.
Sovereign use the revenue from oil supply to help fund entitlements. Hell, even Alaska provides a yearly oil stipend to its state citizens to spend into the economy. Oil is dispersed across the globe in all kinds of products at a disperse cost to the consumer, yet oil has a concentrated benefit to Sovereigns (Russia, Saudi Arabia, Venezuela, etc.) to helps stimulate their economies and balance their budgets and the companies in the oil patch..
It's a little less clear as to the role corporations play as social engineers in this dynamic, but no doubt companies, like the Koch Brothers, have made it their mission to steer (through political donations and TV Ads) the political process and social conscientiousness towards their way of thinking.
All of this doesn't work at $10-$20-$30/ Barrel of oil so enjoy the price at the pump while it lasts.
Remember lot's things, economically speaking, work on the principle of:
"Dispersed cost and concentrated benefit"
@vkt- If that's so (and I'm not contesting the possibility) then Saudi Arabia, Russia, and some other major producers whose national budgets depend on oil at $80+ are in very serious long-term trouble. Iran coming back on line isn't going to help one bit, either.
Considering the instability that a situation like that is liable to introduce, the potential international political and military repercussions are very troublesome.